Pinnacle Financial Reports Diluted EPS of $0.33, a Linked Quarter Increase of 43.5%, for the Third Q

Pinnacle Financial Reports Diluted EPS of $0.33, a Linked Quarter Increase of 43.5%, for the Third Quarter of 2012

NASHVILLE, Tenn.--(BUSINESS WIRE)-- Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) today reported that its net income per diluted common share available to common stockholders was $0.33 for the quarter ended Sept. 30, 2012, compared to net income per diluted common share available to common stockholders of $0.72 for the quarter ended Sept. 30, 2011. Net income per diluted common share available to common stockholders was $0.76 for the nine months ended Sept. 30, 2012, compared to net income per diluted common share available to common stockholders of $0.92 for the nine months ended Sept. 30, 2011.

Net income per diluted common share for the quarter and year-to-date periods ended Sept. 30, 2011, included an income tax benefit of $22.5 million, or $0.51 per diluted common share, as a result of last year's release of the valuation allowance for deferred tax assets. Financial results for the nine-month period ended Sept. 30, 2012, also include accretion of $1.7 million for the remaining preferred stock discount associated with the TARP preferred stock redemption. Excluding the tax benefit from the release of the valuation allowance and the impact of the accelerated accretion of the preferred stock discount, net income per diluted common share available to common stockholders for the three- and nine-month periods ended Sept. 30, 2012, was approximately 57 percent and 98 percent higher than the same periods in 2011.

"We continued the meaningful expansion of the core earnings capacity of the firm during the third quarter, increasing loans at a linked-quarter annualized growth rate of 9.4 percent and increasing our net interest margin for the eighth consecutive quarter," said M. Terry Turner, Pinnacle's president and chief executive officer. "Additionally, we reduced nonperforming assets by 11.9 percent over the prior quarter as we continue our balance sheet rehabilitation."

Building the Core Earnings Capacity of the Firm

Loans at Sept. 30, 2012, were $3.53 billion, an increase of $80.5 million from June 30, 2012. Commercial and industrial loans plus owner-occupied commercial real estate loans were $1.88 billion at Sept. 30, 2012, an increase of $53.0 million from June 30, 2012, an annualized growth rate of 11.3 percent and the ninth consecutive quarter of net growth.

Since expanding to Knoxville in the summer of 2007, Pinnacle has continued its strong growth in that market. The Knoxville footprint reached $594.2 million in loans at the end of the third quarter of 2012, up from $577.9 million at June 30, 2012, and an increase of 11.8 percent from $531.2 million at Sept. 30, 2011.

Average balances of noninterest bearing deposit accounts were $799.5 million in the third quarter of 2012, up 5.8 percent over second quarter of 2012 and 19.0 percent over the same quarter last year.

Revenue for the quarter ended Sept. 30, 2012, amounted to $51.4 million, compared to $48.4 million for the same quarter of last year. Revenue increased 2.5 percent over the quarter ended June 30, 2012, or 10.1 percent on an annualized basis.

Net interest margin increased to 3.78 percent for the quarter ended Sept. 30, 2012, up from 3.76 percent last quarter and from 3.60 percent for the quarter ended Sept. 30, 2011.

Pre-tax pre-provision income was $17.8 million for the quarter ended Sept. 30, 2012, up 9.9 percent over last quarter and 39.4 percent over the same quarter last year.

"The continued growth in our loan volumes is the foundation for our ongoing revenue and earnings growth," Turner said. "Our financial advisors have done a remarkable job in positioning Pinnacle as the 'go to' bank in Nashville and Knoxville for small- and medium-sized businesses, their owners and their employees. Our recent success in hiring a group of highly experienced bankers is already impacting our loan growth. Consequently, we expect them to accelerate our growth over the next two to three years."

Aggressively Dealing with Credit Issues

The allowance for loan losses represented 1.96 percent of total loans at Sept. 30, 2012, compared to 2.02 percent at June 30, 2012, and 2.31 percent at Sept. 30, 2011.

Net charge-offs were $1.9 million for the quarter ended Sept. 30, 2012, compared to $5.7 million for the quarter ended Sept. 30, 2011, and $2.4 million for the second quarter of 2012. Annualized net charge-offs for the three and nine months ended Sept. 30, 2012, were 0.22 percent and 0.31 percent, respectively.

Provision for loan losses expense decreased from $3.6 million for the third quarter of 2011 to $1.4 million for the third quarter of 2012. The results reflect substantial improvement in the credit quality of the loan portfolio compared to the same period in 2011 and a meaningful reduction in net charge-offs.

Nonperforming assets declined by $7.9 million from June 30, 2012, a linked-quarter reduction of 11.9 percent and the ninth consecutive quarterly reduction.

Nonperforming assets were 1.65 percent of total loans plus other real estate at Sept. 30, 2012, compared to 1.91 percent at June 30, 2012, and 3.05 percent at Sept. 30, 2011.

Nonperforming loans declined by $4.3 million during the third quarter of 2012, a linked-quarter reduction of 10.4 percent and the 10th consecutive quarterly reduction. Nonperforming loans are down 33.1 percent from Sept. 30, 2011. Nonperforming loan inflows were $4.6 million during the third quarter of 2012, a linked-quarter decrease of 61.7 percent. Nonperforming loan inflows were also down 73.9 percent from the third quarter a year ago.

The ratio of the allowance for loan losses to nonperforming loans increased to 188.9 percent at Sept. 30, 2012, from 170.5 percent at June 30, 2012, and 137.0 percent at Sept. 30, 2011.

Other real estate declined by 14.3 percent, or $3.6 million, during the third quarter of 2012, compared to the second quarter of 2012, inclusive of $1.4 million in property foreclosures.

Troubled debt restructurings decreased by $2.5 million between June 30, 2012, and Sept. 30, 2012.

Potential problem loans, which are classified loans that continue to accrue interest, declined by $9.9 million from June 30, 2012, a linked-quarter reduction of 8.9 percent. Potential problem loans are down from $131.0 million at Sept. 30, 2011, to $100.7 million at Sept. 30, 2012, a decrease of 23.2 percent. Potential problem loans are down by 68.3 percent from their peak in June 2010.

"One of our primary priorities for the last three years has been to rehabilitate the balance sheet and return to normalized credit metrics," Turner said. "With an annualized net charge-off rate of 0.22 percent, minimal problem loan inflows and a nonperforming assets to total loans plus OREO ratio of 1.65 percent, we continued our forward progress toward the completion of that rehabilitation during the third quarter."

The following is a summary of the activity in various nonperforming asset and troubled debt restructuring categories for the quarter ended Sept. 30, 2012:

(in thousands)

BalancesJune 30, 2012

Payments,Sales andReductions

Foreclosures

Inflows

BalancesSept. 30, 2012

Troubled debt restructurings:

Commercial real estate - mortgage

$

19,040

(3,162

)

-

753

$

16,631

Consumer real estate - mortgage

6,045

(14

)

-

-

6,031

Construction and land development

434

(62

)

-

-

372

Commercial and industrial

983

(48

)

-

-

935

Consumer and other

124

(3

)

-

-

121

Totals

26,626

(3,289

)

-

753

24,090

Nonperforming loans:

Commercial real estate - mortgage

15,236

(1,260

)

(725

)

1,732

14,983

Consumer real estate - mortgage

13,644

(4,272

)

(553

)

1,729

10,548

Construction and land development

6,039

(200

)

(18

)

36

5,857

Commercial and industrial

5,443

(1,483

)

-

936

4,896

Consumer and other

459

(228

)

(90

)

146

287

Totals

40,821

(7,443

)

(1,386

)

4,579

36,571

Other real estate:

Residential construction and development

8,829

(1,167

)

18

-

7,680

Commercial construction and development

11,850

(1,919

)

-

-

9,931

Other

4,771

(1,933

)

1,368

-

4,206

Totals

25,450

(5,019

)

1,386

-

21,817

Total nonperforming assets and troubled debt restructurings

$

92,897

(15,751

)

-

5,332

$

82,478

OTHER THIRD QUARTER 2012 HIGHLIGHTS:

Improving Balance Sheet Composition

The firm has continued to reposition its deposit base so that average balances for noninterest-bearing demand, interest checking, savings and money market accounts increased to $3.08 billion for the third quarter of 2012 from $2.98 billion for the second quarter of 2012. That represents a growth rate of 3.4 percent on a linked-quarter basis and 13.4 percent annualized. In comparison to the prior year's third quarter, average balances for noninterest-bearing demand, interest checking, savings and money market accounts increased 30.8 percent, while average balances for higher-cost time deposits decreased 25.4 percent.

Average balances for noninterest-bearing demand and interest checking made up 39.7 percent of average total deposits at Sept. 30, 2012, up from 33.4 percent for the quarter ended Sept. 30, 2011.

As a result of growing loan demand, the firm has steadily reduced the size of its investment portfolio by $158.0 million since the beginning of 2012, primarily through bond maturities, calls and mortgage-backed securities principal pay-downs.

At Sept. 30, 2012, Pinnacle's ratio of tangible common stockholders' equity to tangible assets was 9.2 percent, compared to 8.7 percent at June 30, 2012, and 8.2 percent at Sept. 30, 2011.

"We continue to be pleased with the loan growth that occurred during the third quarter and anticipate continued loan growth in the fourth quarter given our current business development pipelines," said Harold R. Carpenter, Pinnacle's chief financial officer. "We are also pleased with the double-digit growth in average noninterest bearing deposit accounts, which now make up approximately 21.6 percent of our average deposits."

Revenue growth

Net interest income for the quarter ended Sept. 30, 2012, was $40.9 million, compared to $40.2 million in the second quarter of 2012 and $38.4 million for the third quarter of 2011. Net interest income for the third quarter of 2012 was at its highest quarterly level since the firm's founding in 2000.

Noninterest income for the quarter ended Sept. 30, 2012, was $10.4 million, compared to $9.9 million for the second quarter of 2012 and $10.1 million for the same quarter last year. Excluding the impact of net securities gains, noninterest income was up 6.8 percent on a linked-quarter basis.

Gains on mortgage loans sold, net of commissions, were $2.0 million during the third quarter of 2012, compared to $1.5 million during the second quarter of 2012 and $1.3 million during the third quarter of 2011.

"Our margin expansion in recent quarters has been largely attributable to reductions in our cost of funds," Carpenter said. "We have additional opportunities to reduce our funding costs, but the pace of improvement should decrease in future quarters. Declining loan yields are another headwind facing our industry, so we were pleased our third quarter results experienced only a slight decrease on yields."

Noninterest and income tax expense

Noninterest expense for the quarter ended Sept. 30, 2012, was $33.6 million, compared to $35.7 million in the third quarter of 2011 and $33.9 million in the second quarter of 2012.

Salaries and employee benefits costs increased by 1.2 percent from the second quarter of 2012 and 2.4 percent from the same period last year.

Included in noninterest expense for the third quarter of 2012 was $2.4 million in other real estate expenses, compared to $5.1 million in the third quarter of 2011 and $3.1 million in the second quarter of 2012.

Income tax expense was $5.0 million for the third quarter of 2012, compared to a benefit of $17.0 million in the third quarter of 2011 and expense of $5.1 million in the second quarter of 2012. The income tax benefit in the third quarter of 2011 was the result of the release of the valuation allowance against our deferred tax assets.

Included in the other real estate expense for the quarter was $1.0 million of additional write downs of existing OREO balances based on updated appraisals. The firm also recorded $933,000 in net losses related to the disposition of $7.4 million of other real estate. Noninterest expense excluding the impact of OREO expenses was approximately $31.2 million in the third quarter of 2012, compared to $30.8 million in the second quarter of 2012 and $30.6 million in the third quarter of 2011.

Carpenter said that management continues to be pleased with the progress toward increasing the operating leverage of the firm, noting that the efficiency ratio had improved to 65.4 percent, or 60.7 percent, excluding the impact of other real estate expenses. He stated the quarterly expense run rate for the fourth quarter of 2012 should remain consistent with that of the third quarter.

WEBCAST AND CONFERENCE CALL INFORMATION

Pinnacle will host a webcast and conference call at 8:30 a.m. (CDT) on Oct. 17, 2012, to discuss third quarter 2012 results and other matters. To access the call for audio only, please call 1-877-602-7944. For the presentation and streaming audio, please access the webcast on the investor relations page of Pinnacle's website at www.pnfp.com.

For those unable to participate in the webcast, it will be archived on the investor relations page of Pinnacle's website at www.pnfp.com for 90 days following the presentation.

Pinnacle has consistently been named a "Best Place to Work" by several publications. Pinnacle has the largest market share among businesses in Nashville with annual sales from $1 to $500 million, according to Greenwich Associates.

Pinnacle Financial Partners provides a full range of banking, investment, mortgage and insurance products and services designed for small- to mid-sized businesses and their owners and individuals interested in a comprehensive relationship with their financial institution. Comprehensive wealth management services, such as financial planning and trust, help clients increase, protect and distribute their assets.

The firm began operations in a single downtown Nashville location in Oct. 2000 and has since grown to over $4.8 billion in assets at Sept. 30, 2012. At Sept. 30, 2012, Pinnacle is the second-largest bank holding company headquartered in Tennessee, with 29 offices in eight Middle Tennessee counties and three offices in Knoxville.

Additional information concerning Pinnacle can be accessed at www.pnfp.com.

Certain of the statements in this release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words "expect," "anticipate," "goal," "objective," "intend," "plan," "believe," "should," "seek," "estimate" and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking. All forward-looking statements are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of Pinnacle Financial to differ materially from any results expressed or implied by such forward-looking statements. Such risks include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses; (ii) continuation of the historically low short-term interest rate environment; (iii) the inability of Pinnacle Financial to grow its loan portfolio in the Nashville-Davidson-Murfreesboro-Franklin MSA and the Knoxville MSA; (iv) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (v) effectiveness of Pinnacle Financial's asset management activities in improving, resolving or liquidating lower-quality assets; (vi) increased competition with other financial institutions; (vii) greater than anticipated adverse conditions in the national or local economies including the Nashville-Davidson-Murfreesboro-Franklin MSA and the Knoxville MSA, particularly in commercial and residential real estate markets; (viii) rapid fluctuations or unanticipated changes in interest rates; (ix) the results of regulatory examinations; (x) the development of any new market other than Nashville or Knoxville; (xi) a merger or acquisition; (xii) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including intangible assets; (xiii) the ability to attract additional financial advisors or to attract customers from other financial institutions; (xiv) further deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xv) inability to comply with regulatory capital requirements, including those resulting from recently proposed changes to capital calculation methodologies and required capital maintenance levels; and, (xvi) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy, including implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A more detailed description of these and other risks is contained in Pinnacle Financial's most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2012. Many of such factors are beyond Pinnacle Financial's ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this release, whether as a result of new information, future events or otherwise.

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - UNAUDITED

September 30, 2012

December 31, 2011

ASSETS

Cash and noninterest-bearing due from banks

$

70,730,026

$

63,015,997

Interest-bearing due from banks

76,678,278

108,422,470

Federal funds sold and other

730,583

724,573

Cash and cash equivalents

148,138,887

172,163,040

Securities available-for-sale, at fair value

738,705,182

894,962,246

Securities held-to-maturity (fair value of $586,813 and $2,369,118 and at September 30, 2012 and December 31, 2011, respectively)